Jul 2, 2012
LONDON, 02 July 2012 – Aon Hewitt, the global human resource solutions business of Aon plc (NYSE:AON), has said that the liabilities of the FTSE 350's final salary pension schemes, as shown in their company accounts, have now reached 35% of their sponsoring companies’ combined market capitalisation. This is the highest level this proportion has ever reached.
The proportion has increased significantly over recent months due to rising pension scheme liabilities while equity markets have remained at relatively low levels. The rise in pension scheme liabilities is largely due to the extremely low gilt yields.
The FTSE 350 pensions accounting deficit stood at £77bn at 30 June 2012, an increase of 40% since the start of most companies’ accounting year (31 March 2012) and up from £20bn at 31 March 2011. The FTSE 350 aggregate pensions accounting liability was £570bn at 30 June 2012 (up from £473bn at 31 March 2011), while the market capitalisation of the FTSE 350 on the same date was £1,623bn (down from £1,768bn at 31 March 2011).
Marcus Hurd, principal & actuary at Aon Hewitt, said:
"When we look at the figures, it's evident why final salary pension schemes are posing such financial headaches for their sponsors. When the final salary pension scheme liability is over a third of the FTSE 350's market capitalisation, there's no wonder that small changes in pensionschemes are having a disproportionate effect on the sponsor's finances.
“Pension scheme liabilities have increased by 18% since March 2011 while the market capitalisation of the FTSE 350 has actually fallen. It is the rising liabilities of these pension schemes that are causing the pain."
"Schemes are in this position largely as a result of low bond yields - driven down by the Bank of England’s quantitative easing programme of gilt purchases - and by demand from foreign buyers attracted by the relative safe investment haven status of the UK.
"It's clear that pension scheme liabilities are set to remain at historic highs while current market conditions persist, so we are seeing sponsors increasingly looking towards agreeing flightplans with trustees to agree common goals and objectives. In particular, we are also seeing increased interest in implemented flightplans, where investment and trigger decisions are delegated to a third party to take swifter advantage of market opportunities."
Colin Mayes Giles Abbott
Aon Hewitt Capital MSL
01372 733689 020 7307 5340
Notes to editors
Over the last five years, pension scheme accounting liabilities have increased from £389bn at 31 March 2007 to £570bn at 30 June 2012. This now represents 35% of the market capitalisation of the FTSE 350 companies, up from 21% in March 2007.
The historical statistics included in this release have been calculated as at 31 March as this is the cut-off date for most FTSE 350 company annual accounts.
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About Aon Hewitt
Aon Hewitt is the global leader in human resource solutions. The company partners with organisations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit www.aonhewitt.com.
Aon plc (NYSE: AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 61,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world's best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit www.aon.com for more information on Aon and www.aon.com/manchesterunited to learn about Aon's global partnership and shirt sponsorship with Manchester United.
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